Fears Wales could be hit by levels of destitution and hardship not seen for decades soared today when one of Britain’s most respected think tanks warned of more than a million public sector jobs losses.

Fears Wales could be hit by levels of destitution and hardship not seen for decades soared today when one of Britain’s most respected think tanks warned of more than a million public sector jobs losses.

The Institute for Fiscal Studies today predicted 1.2 million job losses in the public sector by that date, 300,000 more than predicted by the Government’s official forecasters

Spending on services such as the police, defence, transport and justice may have to be cut by a third by 2017-18, it warns.

It warns another deep recession would drive national debt above 100% of GDP.

The IFS said in its pre-Budget analysis that failure to hit deficit reduction targets means tax rises or “substantial” additional cuts in welfare benefits are likely after the 2015 general election to avoid “hard to contemplate” cuts in Whitehall budgets.

It stated the fiscal position may force the Chancellor to raid pensioner benefits, the NHS, schools or overseas aid, hitherto protected from cuts.

The UK Government is due to borrow £64bn than was planned by 2015, and the IFS expects borrowing to be higher this year than in 2012.

It has calculated that if the UK Government protects spending on health, schools, overseas aid and defence equipment then investment in other areas would need to fall by around 35%.

The think tank states: “If departments continue to cut their pay bills beyond 2014-15 at the rate they are currently planning then public sector employment would fall by 1.2 million by 2017-18, rather than by 900,000 as the [Office for Budgetary Responsibility] forecasts. Avoiding such deep cuts to public services, whilst sticking to fiscal plans, would require substantial and additional cuts in social security spending; or tax rises would need to be implemented.”

A future Government may well have to make tough decisions between supporting pensioners and other groups.

The IFS states: “Spending on pensioner benefits has risen by over 60% in real terms since 1997-98, and now takes up well over half of the total social security budget. Maintaining this protection would imply further steep reductions in working age welfare expenditure if the government wanted to see overall social security spending cut.”

It adds: “The whole set of tax and benefit changes introduced between the start of 2010 and 2015–16 will hit the richest households hardest.

The authors suggest: “A Government in search of raising revenue in a progressive manner could also – for the first time in nearly 40 years – simply add a penny to the main rates of income tax, raising more than £5bn, mostly from the better off.”

Victoria Winckler of the Merthyr Tydfil-based Bevan Foundation said: “This IFS analysis is deeply troubling – it shows the UK economy and public finances are in a deep hole from which the climb will be long and hard. Even worse, their analysis assumes some economic recovery this year and next – yet year after year we have seen forecast growth fail to materialise.

“The outlook for ordinary people is extremely gloomy. The least well-off are forecast to be hit by further tax and benefit changes nearly as hard as the richest.

“Coming on top of several years of static wages, cuts in benefits and rising prices, with very little room for cutting household spending further, the consequences for low income families look dire. I honestly wonder how some families will cope and fear a return to levels of deprivation and hardship not seen for decades.

“Nor is there much scope for the Welsh Government to mitigate such hardship. The IFS forecast of a cut in the Welsh Government’s block grant of in 2014-15 of 1.6% will make it tough for the Government to maintain services.

“The cut might not sound much but the effect over five years is a reduction of 12.6% – at a time that demand for services, expectations and prices are rising. The fact that the percentage cut for Wales is less than the UK is no comfort at all given the level of need in Wales.

“As if this isn’t enough, the report warns that even more cuts will be needed. It raises the spectre of yet more dramatic cuts to social security benefits and suggests that the relatively immunity of pensioners from cuts could soon end.”

Hugh Coombs, professor of accounting at the University of Glamorgan, warned that “bad times” are around the corner for Wales and unless economic growth returns the “pain” is only starting.

He said: “The public service financial outcomes sought by the Chancellor were originally planned in the context of eliminating the UK’s structural deficit by 2015-16. This has been colloquially named Plan A but inevitably has changed over time as goals have been missed, dropped or consequently changed.

“Eliminating the structural budget deficit by the end of the parliament was abandoned in the 2011 Autumn Statement. Reducing the debt-GDP ratio in 2015-16 went in the following year’s Statement.

“Setting Departmental Expenditure Limit (DEL) spending targets but allowing the ‘automatic stabilisers’ which the Chancellor of the Exchequer once described as a ‘key part of the flexibility built in to our plan’ to function were lost as well in 2012.

“What has remained consistent, however, is the significant financial pressure on UK public services (including health even through protected in England) to reduce costs and/or achieve value for money in the delivery of their services. This, in the public service spending planning environment outlined where considerable uncertainties obviously exist.

“In the words of the Noel Coward song, bad times will continue to be around the corner for sometime. For Wales, therefore, the bad news will continue and specifically for services such as local government optional services will be crowded out by the need to meet statutory obligations.

“The pain to date has only been the start unless economic growth returns.”

Iestyn Davies of the Federation of Small Businesses said the private sector needed help from the Welsh Government to make up for the loss of public sector jobs.

He said: “It is important that the Welsh Government uses its share of the UK public spend to maintain its support for businesses in Wales facing historic and deep-seated challenges as well as the continued fall-out of the banking crisis and the potential triple-dip recession. If the predictions for substantially more public sector jobs cuts become a reality then the private sector needs assistance from government to be able to step in to bridge the gap.”

Labour Shadow Welsh Secretary Owen Smith said: “With just over a month until the Budget, George Osborne must now turn to Labour’s alternative strategy of a compulsory jobs guarantee for the long-term unemployed, a temporary VAT cut to boost family incomes and bringing forward long-term infrastructure investment to kickstart the economy. For the sake of Welsh families struggling to make ends meet and facing years of uncertainty, he must now admit he was wrong and implement Labour’s plan for jobs and growth.”

Plaid Cymru MP and Treasury spokesman Jonathan Edwards said the report was a “damning indictment of George Osborne's failed ‘Plan A for austerity’ economic plan.”

He said: “In his ideologically-driven and self-defeating agenda of the past two years since the autumn 2010 spending review, he has consistently failed to meet his own targets in terms of the deficit reduction and growth in the economy.”

He added: “Plaid Cymru advocates a lifting of Osborne’s self-defeating austerity, and a stimulation of the economy through investment in infrastructure and public services which will bring growth and jobs to the economy.”

The Unite union said Chancellor George Osborne was an “unmitigated disaster” and called for him to be sacked.

A Treasury spokesman said: “As the Institute for Fiscal Studies shows, the Government continues to tackle the deficit in a way that ensures those with the broadest shoulders bear the heaviest burden. The IFS point out tax and benefit changes since the beginning of the Parliament will ‘hit the richest households hardest’, and changes this April will benefit working households.”

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